Mon, Oct 20, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Private Equity Strategies

Data Snapshot: Private Equity and Pension Funds Go Steady

Monday, April 29, 2013

By: Bailey McCann, Private Equity Strategies

In our last issue, we discussed the potential impact of institutional divestment around hot button issues like guns and climate change. In that piece, data showed that even if institutions like public pension funds are seeing returns from controversial investments, stigma around those investments and/or pending legislation, may in of itself prompt divestment even without a public outcry.

Now, the Private Equity Growth Capital Council (PEGCC), has released a new whitepaper detailing just how intertwined public pensions are with private equity and what that will mean for the industry. The report highlights the significant amount of capital pension funds commit to private equity and the financial gains they receive from the outperformance of these investments.

Despite losses from other investment strategies during the Great Recession, one bright spot for pensions is the superior performance of private equity funds, which helped buoy overall pension returns. The PEGCC research found that the median public pension portfolio received 8.8% in returns from private equity, compared to 3.7% in public equity and 5.7% in total portfolio returns, annually over the past ten years.

Overall, 60% of the funding available in pension funds comes from returns on investment – setting up a high-pressure situation for the directors of those funds when investments fail to return. The long-term structure of private equity investments can provide a buffer from episodic market corrections, but lengthy recessions like 2008 can depress returns.

Private equity too relies on investments from pension funds. Data in the paper shows that investments from public pensions account for 43% of all invested capital in private equity. According to the PEGCC, pensions are "essential to the private equity industry, just as private equity’s superior returns are vital to the financial health of pension funds."

"Without private equity returns, public pension plans across the country would incur greater unfunded liability, possibly resulting in higher pension contributions by employees and a spike in taxes paid by local residents," Bailey concluded.

 
This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies


Banner

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Roundtable: Where are all the good ESG hedge funds?[more]

    Benedicte Gravrand, Opalesque Geneva: What are the benefits of sustainable investing? Many pension funds look to focus on that angle to reflect their company’s good governance, but face many challenges while doing that. A portfolio manager at Univest, a large Dutch pension fund, discusses this is

  2. Bill Gross gives his first investment outlook for Janus fund[more]

    Bill Gross strikes a gloomy tone in his first note to investors at his new gig at Janus Capital. Bill Gross, the renowned bond fund manger, struck a pessimistic chord in his first note to investors at his new gig at Janus Capital. His notes, usually full of silly commentary and upbeat advice, took a

  3. Investing - Big investors move to shore up Fannie, Freddie trade, Two hedge funds eye $1bn support to Sahara to secure Subrata Roy's release[more]

    Big investors move to shore up Fannie, Freddie trade From Forbes.com: Two of the nation’s most prominent investors who have been leading the charge to make a big score out of the shares of Fannie Mae and Freddie Mac moved on Friday to shore up shares of the mortgage giants that plunged r

  4. Opalesque Exclusive: What's next for trend followers?[more]

    Bailey McCann, Opalesque New York: New research out from Ibbotson touches on a key debate happening among investors and fund managers, specifically whether long term trend followers can survive in the new

  5. Hedge funds post negative returns in the third quarter[more]

    Bailey McCann, Opalesque New York: Q3 hedge fund returns were negative, marking the industry's first quarterly decline since Q2 2013 according to the latest hedge fund data from eVestment. Emerging markets saw losses more than twice that of developed markets. Declines from funds investing in